World

India's brokerage stocks fall as regulator mandates uniform charges

Exchanges charge lower fee to brokers if they generate high volumes, contributing to surge in trading across segments

REUTERS July 02, 2024

A man walks past the new logo of the Bombay Stock Exchange (BSE) building in Mumbai, India, July 12, 2023. PHOTO:REUTERS

MUMBAI/BENGALURU:

Shares of Indian brokers fell on Tuesday, a day after India's markets regulators asked market institutions like stock exchanges to levy uniform charges on brokers that are not based on volumes.

Brokerages like Angel One (ANGO.NS), opens new tab, 5Paisa Capital (PAIS.NS), opens new tab, SMC Global Securities (SMCG.NS), opens new tab, Motilal Oswal (MOFS.NS), opens new tab, Geojit Financial (GEOJ.NS), opens new tab and Dolat Algotech (DOLA.NS), opens new tab fell between 3% and 8% in early trade.

Exchange operator BSE (BSEL.NS), opens new tab was down 2.5%.

Exchanges often charge a lower fee to brokers if they generate high volumes, contributing to a surge in trading across segments like derivatives, which the regulator wants to curb.

The new regulation will be effective from Oct 1.

Securities and Exchange Board of India last week warned of rising risks from a surge in derivative trading volumes, with small investors jumping in to trade risky options contracts.

A series of steps are being discussed by regulators to cool the frenzy, Reuters reported last month.

"A 100% pass-through of exchange transaction charges threatens to destabilise the discount brokerage business model," Tejas Khoday, cofounder and CEO of FYERS, a discount broking firm said.

While retail customers are charged the standard slab rate, brokers were benefiting from a lower fee due to high turnover, Khoday said.

The exchange transaction charge, which constitutes between 15%-30% of large brokers' revenues and more than 50% of discount brokers', is crucial for their sustainability, Khoday said.

One of India's top discount brokers, Zerodha, did not immediately comment on the impact of the regulation on its business.

Shares of some of the brokerages have risen between 50%-124% so far this year on a surge in trading activity, with Indian benchmarks Nifty 50 index (.NSEI), opens new tab and S&P BSE Sensex (.BSESN), opens new tab hovering around record highs.

While Dolat Algotech is the top gainer among brokerage stocks so far this year, surging 124%, Angel One has been a top drag, falling 26%.